Thursday, June 9, 2011

Starting in 2006, thanks to a provision in the Pension Protection Act, small charities are no longer exempt from filing annually with the IRS. Specifically, those with gross receipts of $25,000 or less must file the Form 990-N (AKA e-Postcard). The law also specified that charities failing to file the Form 990-N for three consecutive years would lose their tax-exempt status.

After warning the charities that had failed to comply that they were about to lose their nonprofit status and giving them a second chance to file their documents, the IRS has finally revoked the tax-exempt status of 275,000 groups. After Wednesday’s action, the nonprofit sector shrunk by 17% to 1.3 million groups. Not all, but many of the organizations that had their tax-exempt status revoked are charities. So, as a donor, you should be aware that subsequent gifts to these organizations are not tax deductible.

Finally, if you are affiliated with a charity that has lost its tax-exempt status, then you should know that the IRS has left the door open for you. Groups can reapply for their tax-exempt status and have it reinstated retroactively. The fee for that process is $850, but the IRS says in certain circumstances it may lower the fee to $100.

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On this blog, professionals from Charity Navigator, the nation's largest independent charity evaluator and leading donor advocate, share their thoughts on emerging issues relating to the nonprofit sector and offer tips to help you make the most of your charitable endeavors.